Sibos 2012: FN reports from Osaka

29 Oct 2012

As the industry absorbs the ongoing eurozone debt crisis, digests a raft of new and revised regulatory proposals and reacts to increasing cost pressure and competition from developing markets, this year’s conference is sure to provide food for thought. Financial News' team will be reporting the latest news from the conference, which is based on the themes of global shifts in economic power, regulation and the role of technology in an interconnected world.

As regulators across the world attempt to prevent another financial meltdown, Financial News asks senior executives for their views on the role of technology in alleviating the effects of cross-border regulation.

Sibos 2012 is drawing to a close, but the annual conference has been hit by the ongoing political dispute between China and Japan over the sovereignty of eight uninhabited islands. Six large Chinese banks have withdrawn from this year’s event in Osaka.

The growing divergence of the post-crisis regulatory agenda threatens to result in “extremely high” costs for the global financial services market, a top regulator has warned. His comments come amid a growing dispute over how rules being drawn up by national regulators will impact foreign jurisdictions.

There’s an old saying in the markets – it doesn’t matter whether you are right, you also have to stay solvent long enough to be proved right. This is as true for policymakers and regulators as it is for traders and fund managers. After all, it is the solvency of whole countries, regions and the global economy that they are dicing with.

Investment banking is renowned for attracting much of the brightest and best talent in the financial industry. But in an age when huge swathes of the industry are under pressure to increase revenues, reduce costs and improve controls, it is technology brains that have become increasingly important to the industry’s future.

You have to travel to the New World to see the full extent of the changes taking place in the architecture of global finance: viewing the patterns from an Old World perch often obscures the true picture, not least because the Old World is so self-absorbed in its own economic trials and tribulations that the heat and dust generated from themhides the truth of what is happening beyond.

The Depository Trust & Clearing Corporation, one of the US market’s most important pieces of infrastructure, invoked its business continuity plan late last week in anticipation of Hurricane Sandy which hit the east coast of North America on Monday night.

The European Central Bank’s bond-buying scheme to alleviate Europe’s ongoing fiscal crisis is both “unprecedented” and “precarious” and could result in the bank precipitating the type of crisis - an exit from the eurozone - that it is attempting to avert, at top economist has warned.

Increasing socio-economic disparity and political instability pose a challenge to the Asia-Pacific growth story, regional experts have warned. Their comments come amid violent protests in China that have underlined growing tensions between economic growth and social harmony.

Emerging economies are becoming less dependent on the US and Europe - and for good reason. Reliance on developed markets has led to huge global imbalances and repeatedly served emerging markets badly as problems in the west – most recently during the financial crisis – have fed back down the global supply chain.

Welcome to Sibos 2012 in Osaka, the ninth year that Financial News has reported and produced daily newsletters from the conference. Over the next four days, we will bring you the highlights from Osaka.

Over-the-counter derivatives trades that are set to be exempted from stringent rules being drawn up by US and European regulators represent a “time bomb”, market participants have warned. Their comments come as regulators globally put the finishing touches on sweeping derivatives trading rules designed to combat systemic risk.

Criss-crossed by waterways, Osaka has been famous as an aquapolis since the fifth century. In the city’s heyday, boats delivered fresh food and goods to merchants and households, earning the city a reputation as the “kitchen of Japan”.

These ought to be the best of times for transaction banking. They are comparable to the 1980s, when an off-balance sheet, fee-earning business that came with the added bonus of cheap and reliable funding had an obvious appeal to banks hammered by interest rate mismatches, loan losses and the defection of depositors to money funds.

Asian trade finance markets are bracing themselves for a hostile environment over the next few years, caused by the very initiative designed to foster a better banking environment – the Basel III banking reforms.

There is little doubt that changes in the OTC derivatives markets towards centralising clearing will generate a much greater need for collateral. But it is less certain what impact this will have on the tri-party repurchase agreement market and the availability of securities pledged as collateral for these types of loans.